How to be Bearish and Still Pick Winning Stocks

There’s a great scene in the classic cult movie Office Space, where external consultants, known as the ‘two Bobs’, are interviewing staff members to see if they can cut some fat from the organisation.

There was one particularly nervy interviewee who was trying to defend his role. After realising that this guy didn’t actually do anything, one of the Bob’s asked — in the way that you sarcastically ask when you know the answer — ‘What would you say…you do here?’

It’s a hilarious parody of both organisational inefficiency and the cold role of the management consultant. I often think of that scene whenever anyone asks what it is I do.

Not because I’m swanning around the place avoiding work and delegating. It’s just a funny way of thinking about the worthiness of your role. What is it that I actually do here?

I bring it up because recently I received an email from a long time reader. It offered some constructive criticism that made me realise you might not actually realise what it is I do here.

As you’re no doubt aware, TheDaily Reckoning is a free daily email. You’re free to read it or not, and free to agree or disagree to the viewpoints put forward. Disagreeing is actually good. It tells you the ideas are at least challenging.

I simply try to write honestly about things I believe in and in ways you won’t necessarily read about in the mainstream press.

It is an editorial, which means you’re reading my opinion. In TheDaily Reckoning, you’ll generally read about Australia’s economic situation and our pathetic political class, or the fragilities of the global financial system and the perils of over-indebtedness.

But it’s just an opinion. As such it contains inherent biases. I have a ‘bearish’ bias and believe that the world’s debt based financial system is a house of cards.

It was one such bit of ‘bearish’ commentary that elicited a response from a reader. It went along the lines of, ‘it’s all well and good to be bearish and say how bad things are, but how about helping us to make money in this market? We know it’s rigged by constant central bank intervention, but we still need to make an income and interest rates aren’t doing it for us anymore.’

Perhaps you’re thinking the same thing? That it’s all well and good to say how bad things are, but what should you do about it?

Well, that’s where our paid services come into it. The Daily Reckoning is about ideas. It’s about telling you what we think of the markets and, where necessary, telling you about the inherent dangers that lurk. If you’re going to swim (or surf!) you may as well know there are sharks about.

So this is for those of you who may be wondering what else it is I do here…

Well, I write an investment advisory called Sound Money. Sound Investments. In it, I recommend stocks that I think will do well despite operating in what I consider to be a dangerous market.

More importantly though, I acknowledge that when it comes to the market, my opinion doesn’t really matter. Being a slave to a bearish bias means you miss out on opportunities that can make you good money. I take it into account, but I don’t let it dominate.

Since late last year, after making a few changes to my investment approach, I’ve recommended about 14 stocks to subscribers. Of those, 11 are in profit, with gains ranging from around 70% to 7%. The average gain is around 20%.

The three gold stocks in the portfolio are obviously underwater after the smash of the last few days (more on gold in a moment) but apart from that, the stock picks have performed very well.

This is a result of picking stocks that represent good value AND where the charts show that stock to be in an emerging uptrend (Quant Trader Jason McIntosh lends his expertise on the charting front). By following this process you can make good money and still be a grumbling bear.

In short then, in TheDaily Reckoning you’ll get ideas about markets and economies and in my investment advisory (SMSI) you’ll get the stock ideas that hopefully will be profitable in an inherently uncertain and risky environment.

So, that is really ‘what I do here.’ If you want to check it out, you can take out a 30-day no obligation trial by clicking here.

Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market.
To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.

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Just thought I would let you know that whilst I receive countless financial emails daily I view yours as something special. I am not looking for the same old humdrum I am looking for news that is out of left field. Now you guys would be off the planet if you went any further left but it is refreshingly different. I get through the humdrum first and get my mind sorted and save you for last as a check. It is certainly an insane moment in time but I am still finding investment opportunities. Thanks for your comments